Will Investors Provide Affordable Housing?

As banks (slowly) release foreclosures back on to the market, investors are purchasing them in increasing numbers.  Preeti Vissa with The Greenlining Institute wrote an excellent blog on this topic for The Huffington Post, earlier this month.

As she points out, many of the homes foreclosed on by banks and eventually re-sold, are falling into the hands of investors.  While I understand that the idea of investors buying up significant quantities of foreclosed homes probably doesn’t sound like a bad idea, it’s far from a good idea.

Sure, anything that prevents homes from becoming abandoned and vacant helps maintain not only surrounding property values, but diminishes security concerns as well.

However, when individual entities own large chunks of real estate – or anything for that matter – they also tend to control the price.  With many of these foreclosures being turned into higher rent properties, there is a concern that there will be a shortage of affordable housing for the hundreds of thousands of Americans who have lost their homes since the start of the housing crisis.

While Vissa points out that her focus is in the Oakland area, our experience tells us that it’s the same story in Detroit, Las Vegas, Miami, Phoenix and hundreds of other cities in the U.S.

It’s also worth noting that approving more short sales would help reduce the amount of homes available to investors.  When a property is sold via short sale prior to the foreclosure process, it typically ends up with an individual/private purchaser – often, because many lenders will only approve sales to actual individual, not LLC’s, etc.

Besides that, short sales can be long and detailed enough that many investors looking to purchase in bulk, balk at working within the process most lenders current have in place.  In return, more homes end up being purchased by those who plan to either keep them owner occupied or as an individual rental, lowering the odds of collusion or rent-fixing.

Make no mistake though, I’m a big proponent of providing affordable rental housing to the thousands of Americans who have either lost the taste for being a homeowner and

would be perfectly happy renting, or are no longer able to secure a mortgage.

The key word is “affordable”.

I agree with Vissa that it’s tough to say what the answer is, but it’s certainly worth starting the discussion between citizens and elected officials.  Perhaps it’s local municipalities joining up with private investors to provide rent controlled housing that can still make both the city and financial backers a decent profit.

Whatever the answer is, we need to ensure that people don’t return to a time where their home payment ate up far too high a percentage of theirr income.

You can read the complete blog from Preeti Vissa at TheHuffington Post.